Trump Tariff Mania: Reactions and Implications for Procurement

The Department of Commerce’s Section 232 process regarding steel and aluminum imports took a big step forward Thursday when President Trump announced his administration planned to implement tariffs of 25% and 10% for steel and aluminum, respectively.

Obviously this is a big deal for the steel and aluminum sectors, domestically and internationally. Trump’s announced figures are actually higher than the recommendations proposed in Secretary of Commerce Wilbur Ross’ report to Trump, which called for 7.7% tariffs for aluminum in one option.

Regardless, Trump’s announcement is just that — an announcement — until the formal policy is hammered out and put to paper.

Even so, MetalMiner published a detailed analysis of the Section 232 proceedings last week, outlining what could happen in every scenario.

Market Effects

The president’s statements often have a huge impact on the direction of market, and Thursday’s events certainly held to that notion.

As we and other media outlets reported, U.S. steel and aluminum stocks surged on Thursday following Trump’s announcement. Meanwhile, indexes at large suffered, including the Dow Jones dropping hundreds of points on Thursday.

The topsy-turvy effect on the markets is reflected partially in the VIX (the ticker symbol for the CBOE’s Volatility Index).

Following Trump’s announcement — which according to a Washington Post report took many government officials by surprise and at one point seemed like it was not going to happen Thursday at all — the VIX surged by almost a quarter (you can see the rapid ascent in the chart below tracking its movement on Thursday, March 1).

Reactions Around the U.S.

Of course, reception of the announcement among U.S. metals companies and industry associations differed, split between primary and downstream producers.

Heidi Brock, president and CEO of the Aluminum Association — which last week also scored a victory in the form of a final affirmative determination from the Department of Commerce in anti-dumping and countervailing duty probes vis-à-vis aluminum foil from China — praised the decision.

“We look forward to working with the President on implementation and to creating a more level playing field,” she said in a statement.

It remains to be seen, however, if the president will enact tariffs broadly or in a targeted fashion. The Aluminum Association, for example, has in the past year consistently expressed a desire for trade action that focuses on Chinese overcapacity and doesn’t negatively impact market-economy trading partners like Canada and the E.U.

Similarly, the American Iron and Steel Institute cited familiar points in response to the announcement.

“About one fourth of domestic steel capacity today is not being utilized. This is fueled by the massive excess steel capacity in the world today, which is more than eight times larger than the annual output of all U.S. steel producers, and driven by subsidies and other interventionist foreign government policies,” said Thomas Gibson, president and CEO of AISI. “That translates into idled plants and the loss of thousands of jobs. We are pleased that the president is addressing this issue and look forward to the formal announcement next week.”

Downstream producers, who would thus have to pay more for these foreign sources of metal, expressed dissatisfaction with the announcement.

“Today’s decision by the Administration to implement new tariffs severely harms the $37 billion U.S. recreational boating industry and the 650,000 American workers it supports,” said Thom Dammrich, president of the National Marine Manufacturers Association, in a statement.

As for American manufacturers that use the metals to produce their products, the verdict was decidedly negative. Miller Coors, which uses aluminum in its beer cans, was one vocal detractor:

MillerCoors statement: We are disappointed with President Trump’s announcement of a 10% tariff on aluminum. While we won’t know the details for a week, the Department of Defense recently reported that aluminum does not cause any national security issues. (1/3)

— MillerCoors (@MillerCoors) March 1, 2018

Like most brewers, we are selling an increasing amount of our beers in aluminum cans, and this action will cause aluminum prices to rise. It is likely to lead to job losses across the beer industry. (2/3)

— MillerCoors (@MillerCoors) March 1, 2018

We buy as much domestic can sheet aluminum as is available, however, there simply isn’t enough supply to satisfy the demands of American beverage makers like us. American workers and American consumers will suffer as a result of
this misguided tariff. (3/3)

— MillerCoors (@MillerCoors) March 1, 2018

Around the World

What about elsewhere: what is the world saying?

Stuart Burns covered a number of reactions, from China to Canada to the E.U. to Japan.

The verdict? They aren’t too happy.

While most of the focus throughout the Section 232 dialogue has been on China and its excess capacity flooding the global marketplace and depressing prices, trading partners like Canada and the E.U. seem to be nervous. This is especially true for Canada and even Australia, both of which had previously sought assurances that the U.S. 232 policy would include carve-outs for them. (Australian Prime Minister Malcolm Turnbull even met with Trump recently, during which he reportedly looked to reaffirm previous assurances regarding an exemption for Australia.)

As of now, it’s unclear which way Trump’s administration will go on the extent of the tariffs — that is, broad versus targeted. Regardless, metals producers worldwide will be anxiously waiting for the final, set-in-stone tariff legal decision, which could have a huge impact on the global flow of metals.